Australia / Israel Review

China’s quest for Israeli innovation secrets

Surveying the post-war international system in 1952, Israel’s founder David Ben-Gurion wrote that European hegemony was on the decline, and that it stood to be replaced eventually by Asia.

As would happen with many of his varied insights, this one, too, proved prophetic.

China’s and India’s economic and political resurgence in the aftermath of the Cold War is now compounded by an American retreat from geopolitical assertiveness and a gathering European decline.

For Israel, due to its unique geographic location and diplomatic situation, the Asian ascendency entails delicate political manoeuvring as well as ambitious economic initiatives, all of which are well underway.

The Chinese challenge is far more complex and intriguing than that with India, because Beijing, unlike New Delhi, is seen in the US as a geopolitical and commercial rival. That is why the US is generally fine with Israel’s increasingly brisk business with India – now the top client of the Israeli defence industry.

Relations with China have been an entirely different affair, going back all the way to 1950.

Back then, alone among the countries of the West, and also of the Middle East, Israel recognised the young People’s Republic of China and was on its way to establishing formal relations with it when the Korean War broke out.

Jerusalem was now compelled to follow Washington’s lead, but in spring ‘53, with the Korean War drawing to a close, Mao Zedong’s Foreign Minister, Zhou Enlai, met the Israeli Ambassador to Burma, David Hacohen, and the two resumed efforts to establish formal ties. This budding relationship was finally axed in 1955 by the establishment of the new Non-Aligned Movement, which adopted uncritically the anti-Israeli stance of its large Arab bloc.

Hostility toward Israel became a hallmark of Chinese foreign policy until Deng Xiaoping succeeded Mao in the late 1970s.

First, Beijing’s anti-Israeli rhetoric waned, then a defence relationship began quietly sprouting in the 1980s, at a time when the US saw China as a counterweight to the USSR. Israel thus began selling arms to China, reportedly through its consulate in then-British Hong Kong.

Meanwhile, China launched the massive industrial revolution which ultimately recast it as the world’s second largest economy. By the time diplomatic relations were established in 1992, Israel had become relevant in new ways, as China sought the Jewish state’s expertise in agricultural modernisation. Israel, for its part, began buying Chinese low-tech products in exponentially growing quantities, like the rest of the world, and also sending thousands of tourists to China.

Such was the new relationship until the turn of the century, when the new spirit of Chinese-Israeli normalcy culminated in then-President Jiang Zemin’s visit to Jerusalem, only to soon see the relationship crash into crisis.

The crisis of 2000 came as the result of what would have been a new peak in Sino-Israeli relations, a US$200 million sale of Israeli-equipped, but American-made, PHALCON surveillance planes.
Seeing the prospective sale as a strategic threat and also as a diplomatic intrusion, Washington demanded that Israel cancel the deal.

Then-Prime Minister Ehud Barak, forced to choose between the veteran ally to Israel’s west and a potential ally to its east, chose the former. His announcement that Israel was cancelling the deal cost Israel US$350 million in compensation fees to Beijing – and also created a diplomatic chill which lasted several years.

Sixteen years on, that trauma is largely healed. China has since then hosted two Israeli prime ministers – Ehud Olmert in 2007 and Benjamin Netanyahu in 2013. Then again, the effects of the 2000 PHALCON crisis are still palpable. Israeli defence exports to China have dwindled, reflecting American demands that Israel is careful to observe, though military relations persist, including Chinese Chief-of-Staff Gen. Chen Bindge’s visit to Israel in 2011, and then-IDF Chief-of-Staff Lt.-Gen Benni Gantz’s visit to China the following year.

The dented military relationship notwithstanding, Israel’s commercial focus is steadily shifting from west to east.

The statistics are unambiguous. Last year, Israeli exports to Asia exceeded for the first time exports to America, as the former rose in one year from 20% to 25% of Israeli exports, as opposed to the latter’s 24%. Europe’s share is still somewhat higher than Asia’s, but in the space of a mere eight years it has slid from 33% to 28%.

Israeli imports from China, meanwhile, have multiplied over the past decade, from 0.6% of Israeli imports to 10.3%, or US$5.9 billion. Imports from Japan, by comparison, declined over this period from 4% to 2%, or US$1.7 billion, despite the popularity of Japanese cars in Israel.

The Israeli conclusion from these dry figures is clear: the future is in the east, and within it, in China – certainly in terms of trade, and possibly also, in due course, in terms of diplomacy.

That is why the Foreign Ministry recently decided to close some embassies and consulates in Philadelphia, Marseilles, Minsk and San Salvador, after having opened new ones in Bangalore, Guangzhou and Shanghai, alongside the long-standing diplomatic missions in Tokyo, Singapore, Beijing, Hong Kong, New Delhi, Mumbai, Hanoi, Manila, Bangkok and Seoul.

While China buys Israeli technological, pharmaceutical, biochemical and agricultural products and expertise, and Israeli imports from China have expanded from last century’s toys and textiles to fridges, telephones, TVs and cars, Chinese firms have become central in Israeli infrastructure projects and corporate acquisitions.

Most visibly, China’s Bright Food in 2014 bought a 56%-stake in Israel’s largest and most iconic dairy food producer, Tnuva, reportedly for US$1.4 billion, and Shanghai-based investment group Fosun more recently bought Israeli cosmetics manufacturer Ahava for US$77 million.

At the same time, Chinese firms joined Israeli partners in digging the Carmel Mountain tunnels, extending the Acre-Karmiel railway, building Tel Aviv’s subway and expanding the Ashdod seaport.

All this hyperactivity was part of the Chinese economy’s era of breakneck expansion, when it was registering 27 years of double-digit growth rates.

Now, however, signs are abounding that the Chinese industrial revolution’s first phase, the passage of workers from farm to factory and from village to city, has exhausted itself. As consumer demand sags, stock prices plunge, and a real-estate bubble looms, China is seeking a post-industrial era. That, too, makes Israel relevant.

Attentive to critics who cite the contrast between China’s ability to mass produce and its failure, for now, to invent, the Chinese are now seeking ways to import, study, and cultivate innovation. That brings them to Israel.

“Israel is known throughout the world for its innovation,” said Vice-Premier Liu Jindong in Jerusalem, between meetings with Israeli Prime Minister Binyamin Netanyahu and President Reuven Rivlin in March.

Having arrived to participate in the second meeting of the China-Israel Joint Committee on Innovation and Cooperation, Vice-Premier Jindong came at the head of a delegation of 80 people, which included three ministers, nine deputy ministers, and 14 heads or deputy heads of Chinese universities. The joint committee, which meets annually, was established as a result of Vice-Premier Jindong’s previous visit to Israel in 2014.

During her visit, Jindong joined Netanyahu in a statement that their countries will begin talks on the establishment of a free trade zone.

Such an agreement would be seminal, both commercially and politically.

Commercially, Israeli officials believe a free trade agreement with China can, within several years, double bilateral trade. The Chinese seriousness in pursuing this aim is reflected in a slew of academic cooperation agreements.

What began in 2014 with a deal between the universities of Tel Aviv and Tsinghua for the establishment of a joint centre for research of solar, hydrological and other environmental technologies was multiplied last year by the Haifa Technion, Israel’s top engineering school, as it signed a US$130 million deal to build in Shantou, opposite Taiwan, what will be the Guangdong Technion Israel Institute of Technology.

This April, China’s largest academic institution, Jilin University, signed an agreement with Beersheba University to establish a centre of entrepreneurship and innovation.

Several days later, Shanghai’s top school, East China Normal University, said that together with Haifa University, it will open on its campus a Chinese-funded program that will specialise in neurobiology, biomedicine and other fields.

These are besides a US$60 million commitment announced by Deputy Premier Jindong during her visit to Jerusalem, as well as a new Chinese agreement to issue Israeli visitors 10-year multiple-entry visas.

All these links were only re-emphasised when Knesset speaker Yuli Edelstein led a four-member Knesset delegation to China from April 10 through 15. Edelstein met with both his Chinese counterpart, NRC Chairman Zhang Dejiang, and Chinese Premier Li Keqiang. Keqiang made it clear that innovation was very much what the Chinese leadership thinks about when it thinks of Israel, saying, “This year has seen cooperation projects between the countries in many areas, including the economy, academia and agriculture. This cooperation must be further deepened in many fields, especially in the field of innovation.”

The political repercussions of all this will only become known in the future, but some are already tangible.

One result is that Israel has joined as a co-founder (despite American reservations) the Asia Infrastructure Investment Bank, a Chinese-led version, and undeclared competitor, of the World Bank.

More significantly, China’s public and intense cooperation with Israel signals a disregard for Arab and Iranian misgivings. While China routinely votes against Israel at the UN, Beijing does not try to tell Israel what to do, and has never linked its views concerning the Mideast conflict to its trade with Israel.

Contrasted with Europe’s frequent reprimands and its attempts to pressure Israel through commercial moves like marking products made in the West Bank, Israel clearly prefers the Chinese policy, even if Beijing’s theoretical backing of Palestinian claims can sometimes be unpleasant.

This business-mindedness was underscored by the Chinese purchase of Ahava, whose extraction of Dead Sea minerals has made it a target of anti-Israeli European activists. The Chinese seem to care little for Palestinian commercial claims to the Dead Sea, and have not indicated they will relocate any of their newly purchased asset’s activities.

Similarly, China has in recent years come to share global concerns about the growth of Islamist terror, and is therefore interested in Israel’s experience in fighting terror. In this regard, China’s problems with its own restive Muslim minority in its far west are landing it in the same boat as its American rival, and also with Washington’s veteran ally in the Middle East.

Such military-political circumstances can help the Sino-Israeli relationship, but they aren’t the key to it – just as the political-military PHALCON crisis of 16 years ago couldn’t undo the relationship. What truly feeds the rapidly intensifying relationship is commerce; both that which is already happening, and, even more so, that which has yet to emerge. The future that Ben-Gurion saw in 1952 is here.

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